Client
Best Buy
On the Web
www.bestbuy.com Project
Process Reengineering/ Business Transformation
Shortcut to
Business Challenge
How Accenture Helped
High
Performance Delivered Executive Summary
Best Buy joined Accenture in a unique risk/reward sharing
partnership to drive shareholder value and dramatically increase the company’s
profit-producing capabilities. The aggressive two-year Scientific Retailing
program has led to one of the most dramatic and speedy turnarounds in retail
history.
Download the full client success [PDF, 176K] Thrilling Wall Street With An
Amazing Turnaround
  Business Challenge
In
1996 Best Buy faced a dilemma. The retailer had tripled in size over a
three-year period to $8 billion in sales (2002 sales totaled $19.6 billion),
but Best Buy had done so in spite of operational deficiencies. The company’s
inability to evolve its business processes as it grew was causing problems.
Within a year, sales and profits fell below
expectations, and its stock price plummeted from approximately $10 a share to
less than $2 a share. Best Buy determined to take quick and decisive action to
restore profitability and improve its credibility in the marketplace. Accenture
proved to be the perfect fit for this recovery due to its strong track record
of retail experience and its ability to guide a business transformation from
conception to completion.
How
Accenture Helped
Best Buy teamed with Accenture in April
1997 in a unique and innovative risk/reward sharing arrangement designed to
increase shareholder value and drive profits. Accenture and Best Buy embarked
on a bold two-year Scientific
Retailing program to bring the retailer’s processes and capabilities up
to speed with its accelerated growth and its aggressive plans for future
expansion.
"The partnership (Accenture and Best Buy)
was essential in us pulling ourselves up by the bootstraps and really getting
through a dark period in our history. . . And we're working again with
Accenture, scoping out which of the processes we should be addressing,
rebuilding our SOPs, training our staff and instituting the metrics,
discipline, and accountability so those processes will be sustainable going
forward."
—Rob Bergh, Vice President, Process Development, Best
Buy The business transformation began with
Scientific Retailing’s demand side, where Accenture and Best Buy launched an
Optimized Space and Assortment program. This led to the development of a new
dynamic assortment capability which allowed Best Buy to maximize the
profitability of an item through its life cycle.
In the area of Promotion Effectiveness,
Accenture implemented new analytical tools. The tools allow Best Buy to
effectively allocate expenditures for future promotions based on optimal
traffic and profit mixes that have returned the greatest profit while driving
the highest level of traffic to the store. Since its inception, this program
has helped fuel Best Buy’s industry-leading comparative store increases as well
as associated profit improvements and market share.
Rounding out the demand side efforts,
Accenture applied Precision Pricing principles to create an aggressive pricing
strategy that would enhance Best Buy’s price perception as “best-in-market” and
improve its profitability. Accenture helped Best Buy identify the items that
needed to be priced lower for it to be perceived as a low price retailer while
pricing the less price-sensitive items more moderately.
Scientific Retailing’s supply side offered
further opportunities to create value. To increase efficiency along the
retailer’s supply chain and strengthen its relationships with suppliers,
Accenture and Best Buy initiated a Strategic Sourcing and Vendor Relations
program.
Fact-based analyses gave vendors discussion
documents outlining Best Buy’s new approach for managing its assortments as
well as detailed metrics required for item profitability. From then on,
suppliers were provided with compliance data and measurements of each item’s
financial performance against the required targets. These analyses also helped
Best Buy identify its best-performing suppliers and items and allowed vendors
to profit from increased volume from a reduced selection of items.
Also on the supply side, Accenture
collaborated with Best Buy to overhaul its inventory management capacity. The
companies undertook an Integrated Planning and Visibility effort aimed at
creating optimal levels of inventory to support sales demand. This would
prevent higher volume stores from running out of key sale items while also
ensuring that lower sales stores wouldn’t be burdened with excess inventory
that could only be moved at closeout prices.
Its success in achieving these amazing
results on both the demand and supply sides of the business fuelled Best Buy’s
desire for more. Next, Best Buy identified an opportunity for improvement
inside its stores. The retailer teamed with Accenture on an In-Store
Optimization program to create a new store layout, selling strategy, and
operating model geared to its most profitable customer group.
A
Customer Insight program helped Best Buy identify the characteristics of its most
profitable customer group. The program also helped the company trace the
group’s buying patterns as well as the lifestyle traits that motivate its
spending on certain items. Thus, Best Buy was able to shift from a
product-centered strategy to one focused around customer needs and desires.
As a result, the retailer realized it could
reduce its wide assortments, since what the customer really wanted was fewer
select items with more knowledgeable sales support and more solution-type
offerings, especially for more complex items.
The insights driven by this program were
the catalyst for Best Buy to change its store layout. Best Buy has moved
emerging technology, DVD software and wireless communication to the front of
the store. It also has created “transaction centers” where customers can sit
down and review service plans, delivery information, warranties, etc. for
complex purchases. The customer-driven format has won wide praise from industry
analysts and will be the standard for all new Best Buy stores beginning in
fiscal year 2003.
High
Performance Delivered
The comprehensive Scientific
Retailing program that drove Best Buy’s transformation produced spectacular
results that were measurable in every key area of its business, including:
Optimized Space and Assortment
- 20 percent increase in key category revenue
- $25 million profit improvement
Promotion Effectiveness
- 25 percent increase in holiday comparative store sales in
1997
- 7 percent increase in annual comparative store sales in 1997
- $80 million profit improvement
Precision Pricing
- 21 percent increase in revenues in key categories
- 36 percent increase in gross margin in key categories
- $50 million profit improvement
- 18 percent increase in consumer price perception
Strategic Sourcing/Vendor Relations and
Integrated Planning/Visibility
- $600 million decrease in inventory levels
The combined results of Best Buy’s
Scientific Retailing efforts were just as incredible. Over a two-year period
from 1997 to 1999:
- Market capitalization grew from $403 million to $11.4
billion.
- Stock price increased from under $2 per share to over $57 per
share (on a post-split basis).
- Net earnings increased 138 percent to a record $224.4
million.
- Inventory turns increased from 4.6 to 6.6.
- Comparative store sales grew from –5 percent to 13.5
percent.
With the ground it has gained, Best Buy
stands ready to go forward with aggressive plans for acquisition and expansion.
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